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Income Tax Appellate Tribunal, DELHI BENCH “G”: NEW DELHI
Before: SHRI H.S.SIDHU & SHRI PRASHANT MAHARISHI
O R D E R PER PRASHANT MAHARISHI, A. M.
SRF Limited V DCIT A Y 2006- (A) , (A) & ITA No 4853/Del/2009 ( R )
These are the appeals filed by the assessee and revenue against the order of the ld CIT(A)- XII, New Delhi dated 13.03.2009, 13.08.2010 for the Assessment Year 2006-07.
The assessee has raised the following grounds of appeal:-
1. That on the facts and circumstances of the case and in law, the Learned Commissioner of Income Tax (A) has erred in upholding the action of Assessing officer for charging the interest under section 234C of the Income tax Act.
2. That on the facts and circumstances of the case and in law, the Learned Commissioner of Income Tax (A) has erred in upholding the action of Assessing officer by not appreciating that tax return should be processed on the face value and with the information given in the return without touching upon the debatable issues.
3. That on the facts and circumstances of the case and in law, the Learned Commissioner of Income Tax (A) has erred in upholding the action of Assessing officer by not appreciating that appellant has started "new business" of trading of CER w.e.f. March, 2006 and also that appellant has promptly complied the provisions of advance tax by depositing the tax payable before the close of the financial year.
4. That on the facts and circumstances of the case and in law the learned Commissioner of Income Tax (A) has erred in upholding the action of Assessing officer that before charging interest under section 234C the assessee must be fastened with the liability to pay advance tax under section 208, Based on the facts of the case, appellant could not be made liable for paying advance tax and as a result, case of the appellant fell beyond ken of section 208 of the Income-tax Act, 1961.
5. That the aforesaid grounds are independent and without prejudice to each other.
3. The assessee has raised the following grounds of appeal in for the Assessment Year 2006-07: “I. That on the facts and circumstances of the case and in law, the Learned Commissioner of Income Tax(A) has erred in upholding the disallowance of interest and deemed expenses under section 14A of the Income-tax Act read with Rule 8D. II. That on the facts and circumstances of the case and in law, the Learned Commissioner of Income Tax (A) has failed to appreciate that provisions of sub section (2) and (3) of section 14A are applicable from Asst. Year 2007-08. Without prejudice to ground I and II above, III. That on the facts & circumstances of the case and in law, the Learned Commissioner of Income tax (A) failed to understand that even under Rule 8D disallowance can be made only if there is actual nexus between tax free income and expenditure. IV. That on the facts & circumstances of the case and in law, the Learned Commissioner of Income tax(A) erred in upholding the action of Learned AO by not excluding the Interest on term loan of Rs.1232.10 lakhs, which the appellant company has used for capitalization of its fixed assets, while calculating disallowance as per Rule 8D. V. That on the facts and circumstances of the case and in law, the learned Commissioner of Income Tax (A) erred in upholding the action of Learned AO in not allowing the SRF Limited V DCIT A Y 2006- (A) , (A) & ITA No 4853/Del/2009 ( R ) deduction of provision no longer required written back for Rs 1,14,00,0007- which was claimed during the assessment proceedings.” 4. The revenue has raised the following grounds of appeal in ITA NO. 4853/Del/2010 for the Assessment Year 2006-07:- “1 "On the facts and circumstances of the case the Ld. CIT(A) erred in law as well as on merits in directing the AO to re-compute the disallowance u/s 14A as per Rule-8D after reducing the financial charges from the interest considered in the assessment order and not to reduce current liabilities form the total assets for the purpose of calculating disallowance under Rule-80, while the AO computed the disallowance correctly at Rs.54,76,618 as per method prescribed under Rule-80 of the Act.
2. On the facts and circumstances of the case the Ld. CIT(A) erred in law as well as on merits in deleting the addition of Rs.1,05,00,000/- made by AO on account of recovery of loan u/s 41(1) of the Act.
3. The appellant craves to amend modify, alter, add or forego any ground of appeal at any time before or during the hearing of this appeal,"
ITA No. 4455/del/2009 by Assessee & by Revenue Against order of AO u/s 143(3) of the act 5. Assessee is a limited company who filed its return of income on 30/11/2006 showing income of Rs. 1 279349010/– which was processed under section 143 (1) on 31/03/2008. Subsequently, assessee filed revised return of income on 31/03/2008 showing income of Rs. 1266091510/-. Assessee Company is engaged in business of industrial synthetics business wherein it manufactures nylon tyre cord fabric, industrial fabric business where it manufactures quilting fabrics, chemical business where it produces Flourochemicals and chloromethane and packaging film business where it manufactures packaging films. Several additions were made to the total income of the assessee amounting in all to Rs. 38298765/– and taxable income of the assessee was determined at Rs. 1304390275/– against returned income of Rs. 1266091510/–. Assessee, aggrieved with the order of the Ld. assessing officer preferred an appeal before the Ld. CIT (A) who passed an order dated 13/ 8/2010 confirming certain disallowance/additions and deleting certain disallowance/ additions and consequently both the parties are in appeal before us contesting the order of the Ld. CIT (A) on several counts.
The 1 to 4 of appeal of the assessee are against confirmation of disallowance of Rs. 5 476618/- u/s 14A of the Income Tax Act. The Ld. assessing officer noted that assessee has made investment amounting to Rs. 9607.37 Lacs as at 31/03/2006 in quoted and unquoted shares of listed companies and mutual funds etc. The assessee has earned dividend income 3 | P a g e SRF Limited V DCIT A Y 2006- (A) , ITA No 4455/del/2009 (A) & ITA No 4853/Del/2009 ( R )
of Rs. 1133460/– which has been claimed as exempt. It was further noted that no expenditure was disallowed by the assessee under section 14 A of the income tax act. Therefore, he applied provisions of section 14 A, read with rule 8D of the income tax rules, 1962 and made disallowance of Rs. 5476618/-. Assessee approached the Ld. CIT appeal that held that financial charges could not be part of interest for calculating the disallowance under rule 8D. However, he upheld the applicability of rule 8D of the income tax rules for the impugned assessment year and therefore directed the Ld. assessing officer to recompute the disallowance accordingly. Assessee being aggrieved with the finding of the first appellate authority is in appeal before us.
The Ld. authorized representative submitted that the impugned assessment year is assessment year 2006 – 07 and in view of the decision of the Hon‟ble Mumbai high court as well as Hon‟ble Delhi High Court , rule 8D does not apply to this assessment year, but from assessment year 2008 – 09 onwards. Therefore, it was submitted that order of Ld. CIT A is not correct. He further submitted that it is also mandatory for the Ld. assessing officer to record his satisfaction that assessee has incurred some expenditure for the purpose of incurring exempt income and in absence of such satisfaction, which should be objective and based on examination of the books of accounts no disallowance can be made under section 14 A of the income tax act.
Ld. departmental representative relied upon the orders of the lower authorities.
We have carefully considered the rival contentions and fully agree that for the impugned assessment year, the provisions of rule 8D of income tax rules, 1962 which has been made applicable with effect from assessment year 2008 – 09 only and does not apply to the impugned assessment year under appeal before us. Therefore, no disallowance under section 14 A of the income tax act can be made in the hands of the assessee for this assessment year based on computation formula of rule 8D. The second contention of the assessee is that the Ld. assessing officer has not recorded any satisfaction where the assessee has contended that assessee has not incurred any expenditure for earning exempt income. The detailed exploration of the assessee is available at Para No. 7.2 of assessment order where assessee has submitted that out of the total investment, Rs. 8756.86 Lacs are invested in foreign subsidiary company where dividend earned by the company is taxable and not exempt. Furthermore, it was also contended that investment made during the year is out of operating cash flow of the current year and the remaining investment of Rs. 1096.7 Lacs had been 4 | P a g e SRF Limited V DCIT A Y 2006- (A) , (A) & ITA No 4853/Del/2009 ( R )
made earlier in different financial year, to substantiate assessee also submitted the cash flow statement. Therefore, it was the contention of the assessee that it has not incurred any interest expenditure on the investment made. However, without rejecting the explanation of the assessee and recording an objective satisfaction on examination of the books of accounts of the assessee and without stating that assessee has incurred certain expenditure for the purpose of earning exempt income, Ld. assessing officers straightway applied the provisions of rule 8D of the rules and made disallowance of Rs. 5476618/- . Such an approach of the AO cannot be upheld. According to the provisions of section 14 A, the Ld. assessing officers, having regard to the accounts of the assessee should record satisfaction that correctness of the claim of the assessee that it has not incurred any expenditure for earning exempt income then only can determine the amount of expenditure incurred in relation to such income for disallowance. The Hon‟ble Delhi High Court in CIT versus Taikisah engineering Ltd 370 ITR 338 has held that Under sub-section (2) of section 14A of the Income-tax Act, 1961, the Assessing Officer is required to examine the accounts of the assessee and only when he is not satisfied with the correctness of the claim of the assessee in respect of incurring no expenditure in relation to exempt income, can he determine the amount of expenditure which should be disallowed in accordance with such method as prescribed, i.e., rule 8D of the Income-tax Rules, 1962. Therefore, the Assessing Officer at the first instance must examine the disallowance made by the assessee or the claim of the assessee that no expenditure was incurred to earn the exempt income. If and only if the Assessing Officer is not satisfied on this count after referring to the accounts, determine the disallowance. ld AO has failed in his duty to do so. In view of this, we direct the assessing officer to delete the disallowance of Rs. 5 476618/– made under section 14 A of the income tax act. In view of this, we reverse the order of the Ld. CIT (A) on this ground. Ground No. 1 to 4 of the appeal of the assessee are allowed.
The fifth ground of appeal of the assessee was against the finding of the Ld. CIT (A) in not allowing the deduction of provisions no longer required written back for Rs. 11400000/– which was claimed during the assessment proceedings. According to schedule, 14 of the profit and loss account as on 31/03/2007 the assessee has credited a sum of Rs. 148.76 Lacs provisions no longer required. Therefore vide letter dated 19/11/2009 on 29/12/2009 the assessee made the claim of above sum stating that assessee has not claimed the amount of provision written back of Rs. 11428464/– while computing the taxable income as per SRF Limited V DCIT A Y 2006- (A) , (A) & ITA No 4853/Del/2009 ( R )
returned income revised as well as original. The said amount has already been disallowed in the year in which provision was created therefore, the provisions written back cannot be charged to tax. It was further stated that the above amount is allowable while computing the taxable income as It was not claimed in the income tax return originally due to inadvertence. Such claim was not accepted by the Ld. assessing officer as according to him, even in the revised return filed by the assessee on 31/03/2008 this was not claimed. He further referred to the decision of Hon‟ble Supreme Court in case of Goetz India Ltd versus CIT 284 ITR 323 and submitted that no such claim can be entertained by him without their being revised return. The assessee contested the above finding of the Ld. AO before the Ld. CIT appeal who also rejected the claim of the assessee stating that the appellate authorities can only entertain a question of law and thus the claim, which has not been made before the assessing officer through a revised return cannot also be entertained at the appellate stage. Aggrieved by the order of the Ld. CIT appeal the assessee is in appeal before us.
The Ld. authorized representative submitted that this amount should have been reduced from the returned income of the assessee as it pertains to the income shown in the profit and loss account for which provisions are no longer required which is gone to swell the profit for the year. He submitted that no claim of deduction was made the original provision was made or has been allowed to the assessee, Therefore such provision written back cannot be charged to tax. He submitted that the Ld. CIT (A) should have entertained the claim of the assessee, which he has failed to do so.
The Ld. departmental representative submitted that there is no claim made by the assessee before the assessing officer even in the revised return. Therefore, the Ld. assessing officer is correct in not accepting the claim of the assessee.
We have carefully considered the rival contentions and perused the orders of the lower authorities. We fully agree with the order of the Ld. assessing officer in not entertaining the claim of the assessee in view of the decision of the Hon‟ble Supreme Court in case of Goetz India V CIT (supra), however, we do not agree with the view of the Ld. CIT (A) in not entertaining the above claim. In fact, he is fully authorized to examine the above claim and if the deduction is available to the assessee, he should have granted despite there being no claim before the assessing officer in the return of income or in the revised return of income. Hon‟ble Delhi High Court in case of CIT versus J parabolic Springs Ltd 306 ITR 42 has held that considering the decision of Honourable supreme court in Goetz (India) Ltd. v. CIT 6 | P a g e SRF Limited V DCIT A Y 2006- (A) , (A) & ITA No 4853/Del/2009 ( R )
[2006] 284 ITR 323 (SC) wherein deduction claimed by way of a letter before the Assessing Officer, was disallowed on the ground that there was no provision under the Act to make amendment in the return without filing a revised return. n appeal to the Supreme Court, as the decision was upheld by the Tribunal and the High Court, was dismissed making clear that the decision was limited to the power of the assessing authority to entertain claim for deduction otherwise than by a revised return, and did not impinge on the power of the Tribunal. Therefore, according to us there is no restriction on the powers of the appellate authority to entertain such claim. In view of this we set aside this ground of appeal to the file of the Ld. CIT (A) to examine whether the provisions no longer written back can be charged to income tax in spite of the claim of the assessee that no deduction of such sum has been allowed in the earlier years. In the result ground No. 5 of the appeal of the assessee is allowed with above directions.
14. The assessee has further moved the additional ground of appeal along with application under rule 11 of the income tax appellate tribunal rules, 1963 for admission of the same. The application of the assessee says that assessee has received carbon emission reduction certificates in terms of Kyoto protocol and has transferred 14 Lacs such certificates for Rs. 93.85 crores that are shown in the profit and loss account. The claim of the assessee is that such income is not chargeable to tax, which was originally not claimed. Therefore, appellant raised the additional ground that the amount received on transfer of such certificate was a capital receipt not liable to tax under the provisions of the income tax act. He submitted that this is illegal ground, which can be raised at any time by the assessee, and it does not require any fresh facts to be investigated. He relied upon the decision of the Hon‟ble Supreme Court in case of NTPC Ltd versus CIT 229 ITR 383 on the issue of admission of the additional ground and on the merits has relied upon the decision of Hon‟ble Andhra Pradesh High Court in case of CIT versus My home power Ltd 365 ITR 82 wherein it has been held that profit arising on sale of such certificate is capital in nature. He therefore submitted that additional ground may be admitted and adjudicated accordingly.
15. The Ld. departmental representative vehemently objected to the application of admission of the additional ground stating that the claim has never been raised before the assessing officer.
16. We have carefully considered the rival contentions. The issue involved is whether the income shown by the assessee on sale of carbon credit certificates is „ income‟ chargeable to tax or not. The issue is legal in nature and the income has been disclosed by the assessee in 7 | P a g e SRF Limited V DCIT A Y 2006- (A) , (A) & ITA No 4853/Del/2009 ( R ) its profit and loss account and stated in the notes on accounts that sale of such certificate is recognized as income, therefore no fresh facts are to be investigated. In view of the decision of the Hon‟ble Supreme Court in case of NTPC Ltd versus CIT 229 ITR 383 wherein the purpose of any assessment proceedings before the taxing authorities is to assess correctly the tax liability of an assessee in accordance with the law. It is further held therein that if as a result of a judicial decision given while the appeal is pending before the tribunal if it is found that a non-taxable item is taxed or a permissible deduction is denied, The assessee cannot be prevented from raising that question before the tribunal. The assessee has demonstrated in view of the decision of the Hon‟ble Andhra Pradesh High Court that such income cannot be taxed. Therefore the case of the assessee squarely falls within the law laid down by the Hon‟ble Supreme Court. In view of this we admit the additional ground of appeal and remit the issue back to the file of the Ld. assessing officer to decide the issue on merit whether the sale of carbon credit certificates of Rs. 95.83 crores are income chargeable to tax or not. In view of this, the application of the assessee for admission of the additional ground of appeal is allowed as well as the additional ground admitted is remitted back to the file of the Ld. assessing officer to decide it in accordance with the law, after granting reasonable opportunity of hearing to the assessee.
17. In the result appeal of the assessee is allowed accordingly for statistical purposes. Now we come to the appeal of the revenue. The 1st ground of appeal is against the finding of 18. the Ld. CIT appeal to the Ld. assessing officer wherein he has directed the Ld. AO to recompute the disallowance under section 14 A of the Act as per rule 8D after reducing the financial charges from the interest considered in the assessment order and not to reduce current liabilities the total assets for the purpose of calculating disallowance under rule 8D. The claim of the revenue is that the Ld. assessing officer has correctly computed the disallowance applying the provisions of rule 8D of the act. The above issue has already been decided by us while deciding the ground No. 1 to 4 of the appeal of the assessee wherein we have deleted the disallowance made by the Ld. assessing officer in absence of any positive satisfaction as required under the provisions of section 14 A (2) of the income tax act and also holding that the provisions of rule 8D do not apply to the impugned assessment year. Therefore, we dismiss ground No. 1 of the appeal of the revenue.
19. Ground No. 2 of the appeal of the revenue is against the finding of the Ld. CIT (A) in deleting the addition of Rs. 10500000/– made by the assessing officer on account of recovery 8 | P a g e SRF Limited V DCIT A Y 2006- (A) , (A) & ITA No 4853/Del/2009 ( R ) of loan under section 41 (1) of the income tax act. In the computation of total income, assessee company claimed allowable / not chargeable to tax as recovery of loan amount written off in earlier years of Rs. 10500000. The claim of the assessee is that a sum of Rs. 657.53 Lacs were given to a society till the year 2000 – 01 and during the year recovery of loan amount of Rs. 1.05 crores were written off in terms of the amalgamation scheme sanctioned by the Hon‟ble Delhi High Court. It was further submitted that the assessee has credited the above sum to the profit and loss account and not offered to taxation for the reason that it does not represent the written back of any amount earlier claimed as allowable expenses and hence it does not fall within the purview of section 41 (1) of the income tax act. The Ld. assessing officer rejected the claim of the assessee. However, Ld. CIT (A) allowed the claim of the assessee as the expenditure has not been allowed as deduction in the earlier years. Hence, revenue is in appeal before us.
The Ld. departmental representative vehemently supported the order of the Ld. assessing officer. The Ld. authorized representative relied upon the order of the Ld. CIT (A).
We have carefully considered the rival contentions and also perused the orders of the lower authorities. The Ld. CIT (A) has recorded a finding that the recovery of loan cannot be taxed under section 41 (1) because this amount has never been debited in the profit and loss account and never allowed to assesseee as deduction. The Ld. CIT appeal further noted the provision of the law u/s 41(1) of the act and held that the basic requirement for charging an amount to tax is the fact that the same should have been claimed as deduction in the earlier years. We fully agree with the finding of the Ld. CIT appeal in holding that the provisions of section 41 (1) do not apply to the facts of the present transaction and therefore we confirm the finding of the Ld. CIT appeal in deleting the addition under section 41 (1) of the income tax act. In the result ground No. 2 of the appeal of the revenue is dismissed.
In the result appeal of the revenue is dismissed.
Assessee Against intimation u/s 143(1) of the act
This appeal is preferred by assessee against the order of Ld. CIT (A) – XII, New Delhi dated 13/03/2009 wherein he has upheld the chargeability of interest under section 234C of the income tax act. The brief facts involved in this appeal is that for assessment year 2006 – 07 9 | P a g e SRF Limited V DCIT A Y 2006- (A) , (A) & ITA No 4853/Del/2009 ( R ) assessee has filed its return of income on 30/11/2000 showing total income of Rs. 127,93,49,009/-and on which intimation under section 143 (1) of the income tax act, 1961, was passed on 01/03/2008. According to that intimation the interest under section 234C of Rs. 12671350/– was charged. Assessee was aggrieved with the intimation, preferred an appeal before Ld. CIT (A) contending that assessee is engaged in the business of manufacture and sale of nylon industrial yarn, tyre cord fabrics, polyester films etc and during the year assessee has earned income on trading of CER, which is a new source of income. Therefore, the plea of the assessee was that as it is not a normal business activity provision of section 234C is not attracted on income earned during the year. Before him assessee relied on the decision of coordinate bench in case of Haryana warehousing Corporation versus DCIT (2000) [75 ITD 155]. The Ld. CIT appeal rejected the contention of the assessee and stated that, as it is the income earned of the assessee during the year the case of the assessee is covered within the provisions of section 208 of the income tax act and therefore Ld. assessing officer is correct in charging interest under section 234C of the act. Assessee, aggrieved with the order of the Ld. CIT (A) has preferred appeal before us.
Heard the parties. We have carefully considered the facts of the present appeal, which has resulted into payment of interest under section 234C of the income tax act on account of chargeability of income arising out of sale of carbon emission certificates. While deciding the appeal of the assessee for the same assessment year, we have already remitted the issue of chargeability of the above income to the file of the Ld. assessing officer and applicability of the provisions of section 234C with respect to chargeability of interest would also depend on the decision of the assessing officer in that ground as it is consequential in nature. In the result we also set aside the appeal of the assessee against chargeability of interest under section 234C of the income tax act back to the file of the Ld. assessing officer to decide the issue on merit after deciding the additional ground raised
by the assessee.
25. In the result appeal of the assessee is allowed for the statistical purposes accordingly. Order pronounced in the open court on 10/04/2017. -Sd/- -Sd/- (H.S.SIDHU) (PRASHANT MAHARISHI) JUDICIAL MEMBER ACCOUNTANT MEMBER Dated: 10/04/2017 A K Keot 10 | P a g e SRF Limited V DCIT A Y 2006- (A) , (A) & ITA No 4853/Del/2009 ( R )